SRCE
1st Source Corporation
$73.95
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Strong
·
Conviction
Undervalued
Trading 43.3% below fair value
You pay
$73.95
Bear
$83.80
Fair
$130.47
Bull
$158.47
Bear
$83.80
+13.3%
ROTCE 10.0% → 1.69x TBV
Fair
$130.47
+76.4%
ROTCE 13.3% → 2.64x TBV
Bull
$158.47
+114.3%
ROTCE 15.3% → 3.20x TBV
Key Value Driver
ROTCE (13.3%) vs. cost of equity (7.5%)
Implied Market Multiple
1.49x
Summary
With ROTCE of 13.3% vs. 7.5% cost of equity, fair P/TBV is 2.64x on $49.49 tangible book, implying $130.47 per share. DDM cross-check: $78.47.
Warnings
Traditional cash flow models don't work well for banks — lending activity distorts how much cash the business actually generates.
Common valuation shortcuts don't apply here — for banks, interest payments are a core business cost, not overhead.
Dividend-based valuation: $78.47 (40% below our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Key Risks
- Book value quality matters as much as level — check loan loss reserves
- Interest rate sensitivity creates non-linear earnings surprises
- Insurance reserving is actuarial, not financial — errors emerge slowly